No Word on GMAC Vote as Deadline Expires

Monday

Dec 29, 2008 at 5:08 AM

The result of a bondholder vote to raise capital had still not been announced two days later.

LESLIE WAYNE

DETROIT — Two days after a crucial deadline passed, GMAC, the financing arm of General Motors, remained silent Sunday over whether bondholders had approved a plan that would help provide GMAC with federal bailout money.

GMAC bondholders had a midnight deadline on Dec. 26 to approve a bond-exchange program that would have enabled GMAC, which provides loans to car buyers and dealers, to have sufficient capital — a move that GMAC says is necessary for it to continue functioning.

The company is in the process of becoming a bank holding company, which would qualify GMAC to apply for bailout financing from the federal government’s bank rescue fund and also take short-term loans from the Federal Reserve.

Over the weekend, the company would not say whether the bond-exchange plan had succeeded. It is one important element for GMAC to maintain capital levels, with the intent of the exchange to reduce $38 billion in GMAC debt and increase the company’s equity.

Last Wednesday, the Federal Reserve approved GMAC’s application to become a bank holding company. As that was taking place, the company was also engaged in a bond-swap that GMAC had said would re-shape its balance sheet and is critical to its future.

GMAC has been struggling to persuade bondholders to convert 75 percent of their debt into equity in GMAC, a move that would allow GMAC to reach $30 billion in capital. But several bondholders had been balking at the terms of the deal, which had caused GMAC to extend the deadline for the exchange to last Friday and to sweeten the terms for bondholders.

General Motors, which owns 49 percent of the company, and GMAC have both said that getting GMAC back on its feet is a crucial part of G.M.’s recovery plan.

A GMAC spokeswoman, Gina Proia, said in an e-mail message Sunday night that “our statement today is no different than yesterday.” In the previous e-mailed statement, Ms. Proia wrote: “The offer did expire yesterday at 11:59 p.m. as planned. We have not yet issued final results but intend to in the near term. I have no further comment on the exchange until then.”

General Motors representatives could not be reached Sunday night.

GMAC has been saddled with so many losses — caused mainly by an ill-fated move into subprime mortgage lending several years ago — that it has been unable to provide loans to potential buyers of G.M. cars. Car dealers, which rely on loans from GMAC to finance their inventory, have also been fearful that GMAC may soon cut them off.

Erich Merkle, an auto industry analyst with Crowe Horwath, a consulting firm in Grand Rapids, Mich., said on Sunday that “GMAC is crucial to the future of G.M.”

“The government has approved the bridge loans for G.M.,” Mr. Merkle said, referring to the multibillion-dollar loan to G.M. and Chrysler approved by the Bush administration this month. “But to approve loans for G.M. and then let its financial arm fail would defeat the whole purpose of the G.M. loan in the first place.”

He went on: “G.M. has to have a financial arm. Without GMAC, it would make a difficult situation for G.M. unbearable.”

But the fact that GMAC has made no announcement might be taken as a sign that the company was unable to gain bondholder approval and that it was working on an alternative arrangement to raise capital.

If GMAC was unable to get the approval of 75 percent of bondholder, it has other options. It could ask the Federal Reserve to allow GMAC to become a bank holding company with less capital.

It might also be possible for G.M. and Cerberus Capital, which owns 51 percent of GMAC, to put more of their own capital into GMAC. Another possibility would be for the Treasury Department to use some of the $700 billion in bailout money approved by Congress to buy preferred shares in GMAC, which would also increase its capital base.

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